Hormuz shock exposes refining, inventory gaps as energy buffers erode
Global oil buffers cushioned the Strait of Hormuz disruption, but shrinking inventories and strained refining capacity are emerging as key vulnerabilities, a McKinsey report says.
The global energy system has absorbed the disruption to the Strait of Hormuz with less damage than initially feared, but the episode has laid bare weaknesses that could limit its resilience to a prolonged or fresh supply shock, according to a McKinsey Global Institute report.
Oil inventories, bypass pipelines, flexible trade flows and lower energy intensity all helped soften the blow. Those buffers, however, are now under growing strain, with refined products emerging as the critical bottleneck.
"Today's shock absorbers have worked better than may have been anticipated but have had their limits—which are becoming clearer," the report said.
By late August, roughly half a billion barrels had been pulled from global oil stocks, equal to about five days of worldwide demand. Stocks in the US Strategic Petroleum Reserve had slipped below 300 million barrels, down from around 600 million barrels before 2022 and about 400 million barrels at the end of 2025.
Refining has also been squeezed. Gulf refineries have trimmed output by more than 25 per cent, while close to 2 million barrels per day of Russian refining capacity was estimated to be offline in mid-July. Plants elsewhere have been running near full capacity but could not fully cover the shortfall.
Refined-product inventories are lower and more fragmented than crude stocks. Stocks of several fuels, including jet fuel in Europe and gasoline in the United States, touched five-year lows by late July.
In response, governments and companies are weighing steps such as faster electrification and clean energy deployment, additional oil and gas supplies, new pipelines, more diverse trade routes and bigger stockpiles.
McKinsey estimates that measures already under way or under discussion could offset 35 per cent to 70 per cent of pre-crisis oil flows through the Strait of Hormuz by 2030 if another disruption occurs. It cautioned that this is not a forecast, and that the upper end of the range depends on projects now being discussed actually being built.
The report also flagged economic and environmental trade-offs. New oil supply outside the Gulf could cost USD 40-60 a barrel, while new coal-to-liquids capacity could cost USD 75-185 a barrel, against most Gulf oil supply at below USD 30 a barrel.
Energy security, it concluded, will depend less on cutting reliance on any single source and more on building "layers of optionality and diversification" through extra sources, routes, buffers and alternatives, tailored by countries and companies to their own vulnerabilities.